On the Economics of the Pill

The recent controversy over contraception and health insurance has focused on who should pay for the pill. But there is a wealth of economic evidence about the value of the pill – to taxpayers, as my colleague Motoko Rich writes, as well as to women in general.

Indeed, as the economist Betsey Stevenson has noted, a number of studies have shown that by allowing women to delay marriage and childbearing, the pill has also helped them invest in their skills and education, join the work force in greater numbers, move into higher-status and better-paying professions and make more money over all.

One of the most influential and frequently cited studies of the impact the pill has had on women’s lives comes from Claudia Goldin and Lawrence F. Katz. The two Harvard economists argue that the pill gave women “far greater certainty regarding the pregnancy consequences of sex.” That “lowered the costs of engaging in long-term career investments,” freeing women to finish high school or go to college, for instance, rather than settling down.

The pill also helped make the marriage market “thicker,” they write. By decoupling sex from marriage, young people were able to put off getting married and spend more time shopping around for a prospective partner.

Those changes have had enormous impacts on the economy, studies show: increasing the number of women in the labor force, raising the number of hours that women work and giving women access to traditionally male and highly lucrative professions in fields like law and medicine.

A study by Martha J. Bailey, Brad Hershbein and Amalia R. Miller helps assign a dollar value to those tectonic shifts. For instance, they show that young women who won access to the pill in the 1960s ended up earning an 8 percent premium on their hourly wages by age 50.

Such trends have helped narrow the earnings gap between men and women. Indeed, the paper suggests that the pill accounted for 30 percent – 30 percent! – of the convergence of men’s and women’s earnings from 1990 to 2000.

Interestingly, the study also found that the pill had the greatest economic benefits for women with average IQ scores. “Almost all of the wage gains accrued to women in the middle of the IQ distribution,” the paper said. For this group, it said, women with early access to the pill “enjoyed greater hourly wages throughout their twenties and the premium grew to a statistically significant 20 percent at ages 30 to 49.” Why? The pill helped “middle ability” women in “planning for and opting into paid work,” the researchers theorized.

The above article focuses on the economic value of the pill to women generally (and, I suppose, through increased earning power, to the taxpayer), but here’s the specific Brookings Institution paper (“Policy Solutions for Preventing Unplanned Pregnancy” by Adam Thomas, Georgetown University) on the direct value to the taxpayer of certain forms of government-subsidized pregnancy prevention programs.

Here are some extracts:

The research also shows that each dollar spent on these policies would produce taxpayer savings of between two and six dollars…Nearly half of all pregnancies in the United States are unintended, and the parents and children involved in these pregnancies tend to be disadvantaged in a number of ways. For example, Figure 1 shows that unintended pregnancies are disproportionately concentrated among women who are unmarried, teenaged, and poor. Some studies have used sophisticated statistical techniques in an attempt to determine the extent to which pregnancy intentions have a causal effect on maternal and child outcomes. These studies generally suggest that unintended pregnancy and childbearing depress levels of educational attainment and labor force participation among mothers and lead to higher crime rates and poorer academic, economic, and health outcomes among children.

In addition, unintended pregnancy has important implications for public sector balance sheets. For instance, Emily Monea and I estimate that taxpayer spending on Medicaid-subsidized medical care related to unintended pregnancy totals more than $12 billion annually. This figure is substantially more than the federal government spends on the Head Start and Early Head Start programs each year. Unintended pregnancies are also much more likely than intended pregnancies to be terminated. Unintended pregnancies account for more than 90 percent of all abortions—and a substantial majority of Americans of all political stripes support the goal of reducing abortions.

Just one paper, of course, and the Brookings Institution comes with its own institutional bias, but intuitively it makes quite a bit of sense, and, as a taxpayer, leaves me less than thrilled by the direction of some of the rhetoric coming from some sections of the GOP. Read it for yourself and see what you think.

7 comments

This is kinda related to the pill. Think around 1912 the Republicans favored William Taft a unitarian and the Democratics William Jenning Bryant. It was nice when the Republicans allow liberal protestants like Taft that were conservative politically in their mist instead of today where they have to pick the William Jennnings Bryant types but WJB was very liberal in economics he wanted to nationalzed the rail road industry and he was a pacfists.

Indeed, as the economist Betsey Stevenson has noted, a number of studies have shown that by allowing women to delay marriage and childbearing, the pill has also helped them invest in their skills and education, join the work force in greater numbers, move into higher-status and better-paying professions and make more money over all.

I don’t doubt these outcomes but when the issue under discussion is public policy, specifically tax policy designed to reallocate private sector assets, shouldn’t the primary question be focused on the outcomes for society, rather than for a class of people, and to go further, for specific individuals within the class? It is individual women who reap the benefits of better economic prospects. Is it asking too much to expect economists to reinforce this point when they venture forth and wish to share their wisdom.

Those changes have had enormous impacts on the economy, studies show: increasing the number of women in the labor force, raising the number of hours that women work and giving women access to traditionally male and highly lucrative professions in fields like law and medicine.

Every decision comes with opportunity costs. When you increase the number of women in the work force you increase labor supply and increased labor supply, with labor demand held constant, diminishes wages, for instance:

In 2004, the median income for a man in his 30s, a good predictor of his lifetime earnings, was $35,010, the study says, 12% less than for men in their 30s in 1974 — their fathers’ generation — adjusted for inflation. A decade ago, median income for men in their 30s was $32,901, 5% higher than 30 years earlier. Ms. Sawhill said she isn’t sure why men’s wages have stagnated. “It seems there’s been some slowdown in economic growth, it’s possible that the movement of women into the labor force has affected male earnings, and it’s possible that men are not working as hard as they used to.”

Raising the number of hours that women work comes at a cost elsewhere in women’s lives, just as it does with men’s lives. Would it be an unalloyed good if men’s time at work went up from 40 hours per week to 80 hours per week? Or would there be trade-offs involved?

Greater female participation in law and medicine. OK, good for those women if that is what satisfies them in their lives, but why is that good for the economy? Again, it’s a matter of opportunity cost. To the extent that the costs of educating men and women for careers in medicine are shared by society, one has to look at the differential returns on that investment when we consider facts like these:

Margaret Hodge, the new minister for children, must feel bewildered. Her generation of Labour MPs wants to give women the same chance they had – to have both a career and a family – and they’re turning down the offer. Ms Hewitt, the Trade and Industry Secretary, goes further. Her department believes that the stay-at-homes are a drain on the economy, by failing to pay for the cost of their education through taxation. It’s true, to a certain extent. More than half of all students taking up scarce places at medical school are women – yet, after 10 years, 60 per cent of them have given up, leaving a huge hole in the NHS.

My point here is not to argue the pill controversy but to vent about academics prostituting their expertise so that they can be salesmen for their own ideological view. A public good is not the same as a private good. Benefits that flow to individuals do not necessarily enhance the welfare of the public. Decisions come with opportunity costs. What kind of economists ignore such fundamental principles?

Religion is based on unproven and untestable axioms. It sure seems that the justifications offered as evidence in this Pill War are also coming from a “religious” perspective, where only good can come from one position and only evil comes from the other.

There is the economic counter-argument however that social welfare, especially old-age programs such as Social Security, generally rely on a steadily growing population.

The premise of those programs was based on the notion which was put in words by Chancellor Adenauer of West Germany when pressed on the sensibility of old people’s pensions being linked to younger generations’ payments: “Folks always will get kids”.

Another argument could be made, that since reasonable and educated people are much more likely to use contraception and not “mess up” than the poor and uneducated, you’re just artificially shifting the actual gene pool further toward the lower end of the available potential. Indeed when I see ladies with prams, they rarely seem to be in the business of breeding winners, more often in the business of squirting out another CPS case waiting to happen.

Fair enough, and it’s very plausible that readily available contraception does have social and economic benefits. That doesn’t answer the question of who should pay, nor does it make the case that “the government”, employers, or insurance companies ought to foot the bill.

I suppose the question would be which “rhetoric coming from some sections of the GOP” you are less than thrilled by. Is it the “slut” and “keep your knees together” type of comments, or is it, as this post seems to imply, the idea that individuals should pay for contraception out of their own pockets?

In addition, unintended pregnancy has important implications for public sector balance sheets. For instance, Emily Monea and I estimate that taxpayer spending on Medicaid-subsidized medical care related to unintended pregnancy totals more than $12 billion annually. This figure is substantially more than the federal government spends on the Head Start and Early Head Start programs each year.

Well then by all means, let’s have taxpayers fund the pill so we can get more Head Start–which paper after paper has shown to be an utter waste of time and money. I’d rather pay for unintended pregnancies if it comes to that.